Hasbro profit rises, but outlook worries investors

By Justin Grant

NEW YORK (Reuters) - Toy maker Hasbro Inc. (HAS.N) posted better-than-expected quarterly earnings Monday on strong demand for movie-related toys such as Transformers and Spider-Man, but its shares fell nearly 5 percent amid concern about how it will drive sales next year.

Arcadia Investment Corp. analyst John Taylor said Hasbro shares may be slipping because investors are worried about how the company is going to replace Transformers and Spider-Man.

"My sense is people are looking at the strength this year as a good thing but are concerned Hasbro is going to be challenged to drive growth next year," said Taylor, who does not rate stocks or own Hasbro shares.

Wedbush Morgan Securities analyst Sean McGowan sounded a similar theme in a research note last week. He wrote that "investors considering the prospect of negative earnings comparisons in early 2008 may bid the stock down."

Excluding a one-time charge, Hasbro said its second-quarter earnings were $41.3 million, or 24 cents a share, 6 cents above the average forecast of analysts polled Reuters Estimates.

The world's No. 2 toy maker said net income was $4.8 million, or 3 cents a share, after a $36.5 million charge associated with the repurchase of $200 million in warrants for its common stock held by Lucasfilm Ltd.

A year earlier, the maker of Nerf balls and the board game Monopoly earned $27.1 million, or 7 cents a share.

Second-quarter revenue climbed 31 percent to $691.4 million, topping analysts' average estimate of $647.76 million.

Revenue rose 24 percent at Hasbro's North American division and 49 percent in the international segment. Sales of Littlest Pet Shop, Nerf and Playskool toys were strong.

"Our core brands, especially Transformers and Littlest Pet Shop, and new product initiatives have performed very well both domestically and internationally," Chief Executive Alfred Verrecchia said in a statement.

Sales of Transformers and Spider-Man are poised for another jump this fall when the movies they are tied to are released on DVD, Verrecchia said on a conference call.

Hasbro also said it will unveil a line of Transformers clothes, shoes and other products for the back-to-school season.

Hasbro's results came a week after Mattel Inc. MAT.N, the world's No. 1 toy maker, reported higher quarterly profit, boosted by strong sales overseas.

Hasbro said last week's recall of about 1 million Easy-Bake ovens resulted in a charge of $10.4 million, or 4 cents a share. The company recalled the popular pink-and-purple plastic ovens after dozens of youngsters burned their hands.

Hasbro shares, which have soared nearly 75 percent in the last year, were down $1.59, or 4.9 percent, to $30.97 in late-morning trade on the New York Stock Exchange.